Business Law – Business Integrals

Business Law

Basic Principles

Corporate Personality Corporations have separately legal entity status from its owners, which demarcates the asset pool against which creditors may claim.
Benefits	Encourages investment and entrepreneurship, perpetual succession
Cons	However, creates moral hazard in tort law through externalising of corporate behaviour
Lifting of Separation Corporate veil can be ‘lifted’ and shareholders/Directors held liable where:
Fraud/improper purpose	Company is used for fraud e.g. creating company in someone else’s name to avoid restraint of trade clause
Agency	Company is carrying on business on behalf of a principal e.g. incorporating to be eligible for grants in a particular jurisdiction but operating in another
Directors’ duties	Where Director’s don’t meet their duties
Insolvent trading	Director doesn’t prevent insolvent trading

Enterprise Liability

Holding companies within a corporate group liable for each other

Incorporation

Company can have it’s own constitution or use the replaceable rules in s141 of the Corporations Act

Constitution can be altered by general (majority) or special (>75%) resolution
Most power is held by the Board of Directors, but a general meeting of shareholders is need to decide changes in constitution, capital structure or appointment of Directors

Authority to Enter into Contracts

Employees can have express (delegated) or implied authority (by course of dealings)
Ostensible/apparent authority is recognised in estoppel, where if the company represented that someone has authority, it cannot retract this

Indoor Management Rule

A person contracting with a company can assume the person has authority to act on behalf of the company

Directors' Duties

Duty of Care	To undertake their function responsibly, not be negligent Defences – reliance and delegation
Duty to act in good faith	Act for proper purpose and bona fine in interests of the company
Avoid conflicts	Avoid conflict of personal interests with that of company
Not make secret profits	Director can’t profit through use of company or its funds
Disclosure (statutory)	Disclose material personal interests to other Directors (where it relates to the affairs of the company)
Related party transactions	In public companies – cannot give financial benefit to related parties without approval from members
Prevent insolvent trading	Cannot continue to incur more debts if there is a reasonable possibility that the company is insolvent (can’t meet its debt obligations)
Directors’ Insurance – Directors can take out insurance covering wrongful acts undertaken in the course of office e.g. breach of duties, misstatement. Can also take out insurance in a personal capacity. Shareholder Litigation – shareholders, often minority, can seek remedies where majority act oppressively

Winding Up

Dissolution of a company generally happens right before insolvency. Assets are sold and the operations are closed. It can happen through:
Voluntary Administration	Company decides itself to windup Administrators appointed if it is insolvent Possible Outcomes: Company survives with reduced debt burden through deed of arrangement with creditors Receiver disposes of assets Company is liquidated
Receivership	Receivers who have security rights take possession of and control assets
Scheme of Arrangement	Meeting with creditors to agree approach to debts

Corporate Groups

Related bodies corporate (s 50)	Holding companies – parent Child companies – subsidiary and parent Sibling companies – subsidiaries of the same parent
Definition of subsidiary (s 46)	Control of subsidiary’s Board Controls more than half of the votes at a GM Holds more than half of issued shares; or Subsidiary of another subsidiary of the holding company